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This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

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In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Expert led content

+1,000 expert presented, on-demand video modules

Learning analytics

Keep track of learning progress with our comprehensive data

Interactive learning

Engage with our video hotspots and knowledge check-ins

Testing & certification

Gain CPD / CPE credits and professional certification

Managed learning

Build, scale and manage your organisation’s learning

Integrations

Connect Finance Unlocked to your current platform

Featured Content

More featured content

Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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What is Risk-Free Debt?

What is Risk-Free Debt?

Keith Mullin

35 years: Capital markets editorial

The concept of risk-free debt is deeply embedded in financial markets as short-hand for high-quality liquid debt that retains its value over time. In the first video of this series, Keith explains what is meant by "risk-free" and how nothing in financial markets can ever carry zero risk.

The concept of risk-free debt is deeply embedded in financial markets as short-hand for high-quality liquid debt that retains its value over time. In the first video of this series, Keith explains what is meant by "risk-free" and how nothing in financial markets can ever carry zero risk.

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What is Risk-Free Debt?

9 mins 41 secs

Overview

Risk-free debt is deeply embedded in financial markets as short-hand for high-quality liquid debt that typically retains its value over time. Also, it’s referred to as debt that has a zero chance of defaulting.

Key learning objectives:

  • Define Risk-free debt and identify its properties

  • Be able to calculate expected return using CAPM

  • Define HQLA, and explain their benefits

  • Discuss the different types and examples of HQLA

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Summary

What are the Risk-free debt properties?

  • Increases in value at times of market stress as investors seek its safety to protect them from volatility
  • Referred to as safe-haven assets – investors are sure they’ll receive their money back regardless of market conditions
  • Typically offer low returns

How can investors calculate the returns they should demand?

Capital Asset Pricing Model:

What are High-Quality Liquid Assets?

Assets that are:

  • Unencumbered
  • Freely transferable
  • Well diversified
  • Easily and immediately converted into cash
  • Capacity to generate liquidity remains intact, even during periods of severe market stress

What are the benefits of HQLAs?

  • Low risk and low volatility
  • Ease and certainty of valuation
  • Low correlation with risky assets
  • Are listed on recognised exchange
  • Have an active and sizeable market
  • Flight-to-quality characteristics (go up in value in stressed market scenarios)

What are some examples of Level 1 Assets?

  • Coins and banknotes
  • Funds held in central bank reserves
  • Debt securities representing claims on zero risk-weighted sovereigns, central banks and some public-sector entities
  • For domestic banks, sovereign debt of their home country

What are some examples of Level 2A Assets?

  • Securities representing claims on, or guaranteed by 20% risk-weighted sovereigns, central banks, public sector entities or multilateral development banks
  • Plain-vanilla debt securities issued by non-financial corporates and covered bonds
  • Corporate debt securities that have a long-term credit rating from a recognised rating agency of at least AA-, or a short-term rating equivalent in quality to the long-term rating.

What are some examples of Level 2B Assets?

  • Residential mortgage backed securities that meet stringent conditions
  • Non-financial corporate debt securities including commercial paper with an eligible long-term credit rating of between A+ and BBB-, or with an internal PD assessment consistent with this level of credit rating
  • Exchange-traded common equity shares, not issued by a financial institution, that are included in the major stock index of local jurisdiction, and denominated in the local currency of a bank’s local jurisdiction

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Keith Mullin

Keith Mullin

Keith is the founder and director of KM Capital Markets, a media and thought-leadership consultancy. He spent the past 35 years working in specialist capital markets media and has had a ring-side seat at all of the major market events. Prior to setting up KM Capital Markets in 2017, Keith worked at Thomson Reuters.

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